When you have filed for divorce in Texas, one of the matters you must resolve in your case includes dividing property and debt between yourself and your soon-to-be ex. However, whether you and your spouse must split an asset or a debt depends on its legal characterization. The law only requires couples to divide certain types of property and debts in divorce. Contact the team at Jennifer Wiggins Moore Family Law, P.C., today to learn more in a free consultation.
Understanding Property & Debt Characterization
When a couple gets divorced, they may have to divide various assets and debts they hold between themselves. Property and debt characterization helps spouses and the court determine whether an asset or debt qualifies for division between the spouses. Under state law, the court cannot order the division of assets or liabilities that belong solely to one spouse.
Types of Property in a Divorce
During property division in divorce, the parties and the court must classify the couple’s assets. In divorce, couples may own marital property or separate property. Marital property usually includes all assets acquired by the couple during the marriage, regardless of the titling of the asset or which party paid to purchase the asset, such as real estate, vehicles, investments, and retirement accounts. Separate property usually includes all property that the spouses acquired before their marriage, as well as certain types of property acquired during the marriage, such as inheritances and gifts expressly given to one spouse alone.
Separate property can become marital property when the spouse who owned the separate property commingles it with marital property, such that the couple can no longer trace the separate property. For example, commingling may occur when a spouse puts an inheritance into a joint bank account with their spouse and uses the funds to acquire or maintain marital assets, such as the family residence.
Texas uses a community property system for marital property, meaning each spouse has an equal interest in marital assets. During divorce, a court must divide the marital estate evenly between the spouses.
Characterizing Debt
Divorce laws have a more complex method of characterizing debt compared to characterizing assets under Texas’s community property system; instead, the general rules for characterizing debt focus on who acquired the debt and its purpose. Debts may qualify as “separate” debts when a spouse incurred the debt before the marriage or when the spouse incurred the debt during the marriage on their separate property. Separate debts remain the sole responsibility of the spouse who incurred them, and creditors may only pursue recovery from that spouse’s separate property. Furthermore, any contractual debt incurred under an agreement signed by only one spouse remains that spouse’s sole responsibility.
However, some debts incurred during marriage may qualify as “marital” debt that becomes the couple’s joint responsibility in divorce, even if only one spouse incurred the debt. “Marital” debt may include any debts incurred by either spouse during the marriage for the benefit of the marriage/family or necessities, such as food, clothing, shelter, and most kinds of medical care.
Factors That Courts Consider
Factors that courts consider when characterizing property and debt during a couple’s divorce include:
- When the spouse or couple acquired the asset or debt, who acquired it, and the circumstances of the acquisition
- Who used or benefited from the asset or debt
- The titling or legal ownership of the asset or debt
- The contributions of each spouse to acquire and maintain or pay the asset or debt
- The provisions of the couple’s pre- or post-nuptial agreement – a couple may agree to characterize their assets and debts differently than Texas’s community property rules and divorce laws would
Common Challenges of Property & Debt Characterization
Characterizing property and debts in divorce can lead to significant legal disputes and litigation. Some of the biggest challenges in property and debt characterization in divorce include:
- Spouses Hiding Assets or Concealing Debts – A spouse may seek an unfair advantage during property division in a divorce by trying to hide assets from their spouse and the court, knowing that such assets would qualify as community property subject to division. Furthermore, property division can become complex when a spouse conceals debts that the state’s divorce laws make the joint responsibility of both spouses, which may lead to an unfair surprise for the other spouse in the future.
- Business Ownership Interests and Retirement/Investment Accounts – Dividing complex assets, such as businesses, investments, or retirement accounts, can become challenging depending on factors like when the spouse initially acquired the assets and whether they experienced any growth in value during the marriage. Furthermore, dividing such assets may become unfeasible, as a business’s governance documents may restrict transfers of company equity, and individuals cannot withdraw funds from retirement accounts without incurring significant tax penalties.
How Can an Attorney Help?
An attorney can guide spouses through the challenges and legal disputes that may occur when characterizing property and debts in divorce by:
- Advising spouses regarding the legal guidelines for characterizing property and debts
- Reviewing pre/post-nuptial agreements the couple may have signed
- Explaining the implications of each type of classification
- Helping identify the other spouse’s concealed property or debts
- Working with financial experts and forensic accountants for guidance and support on complex financial issues, such as tracing separate property, locating hidden assets, or valuing complex assets
- Preparing and helping clients execute paperwork needed to facilitate the division of community property or debts
Contact Our Board-Certified Family Law Attorney Today for Guidance
When you get divorced, dividing your property and debts under Texas’s community property system makes characterizing property and debt one of the most essential factors in determining whether you get to keep or must split the property or debt. An experienced divorce attorney can review the facts of your case to help you determine the correct classification for your and your spouse’s assets and debts. Contact Jennifer Wiggins Moore Family Law, P.C., today for a confidential consultation with a divorce lawyer to discuss your family’s financial situation and learn how property and debt characterization can affect your rights in divorce.
Jennifer Wiggins Moore Family Law, P.C., serves clients in Keller, Fort Worth, Alliance, Presidio, North Fort Worth, and throughout Tarrant County.
